Tower says the cost of yesterday's 7.5 magnitude earthquake near Kaikoura in the upper South Island is limited by the insurer's reinsurance programme and can only hit profit by a maximum $7.2 million.

The Auckland-based insurer's shares sank 7.1 per cent to 79 cents in response to the quake, and Tower today said it was in the early stages of assessing the impact of the event. Because of the extent of the damage, which has cut off Kaikoura, left thousands of households without power and water, and killed two people, Tower won't have "thorough understanding" of the financial implications for "some days yet," it said.

The company's reinsurance programme provides more than $700 million of cover for these types of events once the excess of $10 million has been passed, which Tower says leaves the maximum possible impact of $7.2 million after tax.

Tower's shares have been punished by investors this year who have questioned its ability to pay dividends after receiving more claims than expected in the Canterbury earthquakes in 2010 and 2011.

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